The European Commission announced yesterday its guidelines for this next phase of negotiations. See here for the full text.
Broadly, these establish and confirm that the EU is seeking a transition that ends no later than 31 December 2020 (which is also the date that the current EU budget comes to an end), ensures that the UK abides by all of its commitments responsibilities as part of its EU and Customs Union membership and seeks the agreement of the UK’s withdrawal in legally binding terms. The EU does concede that the UK may negotiate trade deals on the proviso that such deals do not come into effect until the transitional period comes to an end.
Only just over a month ago, the prospects of agreement between the UK and the EU were looking bleak. It is now looking likely that there will be a transitional period agreed with the EU27 at some point over the next 6-8 weeks (in advance of the next EU council meeting in March) and that significant progress will be made enabling discussions to commence on the UK’s future relationship with the EU. Whether such an arrangement will include the provision of cross-border services, a key issue for the financial services sector in the UK, remains to be seen.